Trust hit by environment watchdog, says mining boss

Peter Hambro Mining yesterday got a clean bill of health from Russia's natural resources ministry after doubts were raised over the gold miner's licences three weeks ago. But Peter Hambro, executive chairman at the Aim-listed group, said the spat with Russia's environmental agency had greatly damaged investor confidence in the country and set the company back.

"Slowly but surely since we have listed [in April 2002], we have built up trust. And at a stroke, by one press conference, all that has collapsed. No amount of press releases saying 'you're good' or 'we're not stealing' will affect it. It's a question of going back and rebuilding investor trust again. It will take a very long time."

The company has had three tense weeks of uncertainty which saw £300m of its value wiped off shares after Oleg Mitvol, the deputy head of Russia's environmental watchdog, said he was seeking to revoke five of its mining licences in the Yamal region of western Siberia.

Hambro shares yesterday ended 9p up at £10 after peaking at £10.50, but they have not regained the £11.90 level last seen before Mr Mitvol intervened.

Mr Hambro was thrilled with the resolution of the row. He said: "The blade was put into the fire, and it came out sharp."

PHM's eventful weeks, during which Mr Hambro was forced to fly to Moscow for a face-to-face meeting with Mr Mitvol, coupled with Shell's reluctant deal with Gazprom - also announced yesterday - have left investors concerned about the current business climate in Russia. They are asking how the country's authorities can so easily put pressure on big firms. Mr Mitvol is also said to have attacked companies such as Porsche, Samsung and Ikea, all of which are active in Russia.

"The important message to get across is the damage it does to Russia plc, it has increased the cost of capital, probably by 2%," Mr Hambro said. "I don't think they understand the incredible power of a nuance in a nervous market."

PHM still does not understand why Mr Mitvol attacked the company in the first place. Three of the licences mentioned did not belong to PHM, and the two others had been investigated for technical misreporting on exploration assets for which the company was fined £200.

Denis Maslov, an analyst for Russia at the Eurasia Group, a New York consultancy, said: "One of the explanations could be that it was a signal the government is focusing on other strategic sectors as well as oil and gas."